Money in the markets

On April 26, the bellwether S&P BSE Sensex breached the 30,000 mark. The whole of April has witnessed frantic activity in the stock markets and many were waiting in anticipation of this momentous occasion. Celebrations at the BSE are evident with a giant cake and bonhomie among the market participants and the CEO, Ashish Chauhan. The last time the Sensex touched this mark was two years ago in March 2015 for a while, but could not hold on to it. This time around, market players and brokers feel there is scope to go up from here based on the improved economic indicators.

Acche DinWe are past the half way mark of the Narendra Modi government’s present tenure and the global market participants find Indian markets to be promising with a stable government at the centre. The post-demonetisation phase has gone down well with investors—retail and institutional, who are finally waking up to participating in the Indian stock markets directly or indirectly through mutual funds. In fact, the mutual fund inflow in recent years has been scaling new heights each passing month, which is only bringing in more investors into the markets to gain from.

At the same time, policy changes are pushing down guaranteed returns on fixed income schemes and removing several tax arbitrages that existed across financial instruments. Compound this with a situation of high inflation, which is opening eyes of several investors on the need to consider investing their money into equities for some real wealth building.

Joining the party are several new offers that are finding takers as well as building wealth for those participating in these IPOs. Like in the past, even this time around, companies are coming up with their offers to raise money from the markets, because there is a visible appetite to invest. In 2016-17, when the markets were up by 17 per cent, there were over 50 new IPOs. This year that number is likely to only go up, if the current trend persists.

The IPO party starts as soon as there is a momentum in the stock markets. If you go by past records, every year the Sensex posts good returns, both the number of IPOs and the money they raise goes up. This phenomenon is more to do with the investor psychology of investing more in a rising market. One must treat IPO investing as a tactical move to investing, even as they closely stay invested in equities— directly or through mutual funds.

Disinvestment driveThere are more IPOs in the pipeline that are in sync with the government’s disinvestment plan, which is worth Rs 72,500 crore in 2017-18. Several PSUs, such as RITES, IRCON and IRCTC are expected to be listed, along with the five state-run insurance companies. The capital will be raised through a mix of IPOs and strategic sales in select PSUs. The government has tasted success with the CPSE ETF model, wherein public participation in PSUs went up. The advantage with the CPSE ETF type model is the safety net of investing in companies where the government is still a major shareholder.

Already the Department of Investment and Public Asset Management (DIPAM) is working towards coming up with IPOs of MSTC, NEEPCO, Bharat Dynamics, Garden Reach Shipbuilders & Engineers and Mazagon Dock Shipbuilders. The ETF route to disinvestment achieves two objectives—it lets the government meet its disinvestment target and it helps investors build wealth with their investments.

Invest now?This is one doubt that stays with prospective investors forever. The reason for such doubts remain because of lack of investor awareness as well as fear. If one goes by the available data, the history PE of the Sensex is currently between 22 and 23, a figure that it had touched when the dotcom boom and bust occurred way back in 2001. The Sensex PE is again touching about the same level. This alone should not cause worry.

If one were to go by past data of how the Sensex has fared over time, in the long run, it has only gone up and built wealth for those who have remained invested for long periods. So, to that extent, you should not be overly concerned if the Sensex has touched 30,000 or for that matter even 40,000, because the index numbers are an indication of how a basket of 30 stocks is faring.

As for the listings in this year so far, barring CL Educate, rest all have made big gains, especially Avenue Supermarts and Shankara Building Products. As a stock market investor, you now need to be cautious, because a lot many people will come into the markets because of the news and noise around it. Some of them could be like you, who are looking at investing for the long run, but there will also be short term players, who because of their shortterm investment nature may end up exiting before realising value. As for wealth creation, equity or stocks is the only asset class where one can expect some upside in the current scenario, and here is the opportunity to make that journey come true.